Minimum Wage Suppose the government passes a law that makes it so firms can't use fringe...

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Minimum Wage Suppose the government passes a law that makes it so firms can't use fringe benefits. In other words, the government will pay for health insurance, PTO, maternity leave, etc.. The government doesn't increase taxes for low-skilled workers (only the ultra wealthy) and will ensure firms do not lose any money from this law. Assume there is no change to the firms' costs. A) Draw what happens to the labor market that relies only on low skilled workers. What happens to wages? B) Now suppose in an alternate reality the government doesn't pass a law on fringe benefits. Instead, the government sets a new minimum wage law where the new wage is equal to the wage from part (a). Do this in two steps: (1) Firms respond by lowering fringe benefits and (2) assume workers really like fringe benefits. Show what happens on a new graph. C) Given part (B), suppose workers do not care about fringe benefits. Show what happens when firms respond to the binding minimum wage by lowering fringe benefits. What happens to employment? D) Now, suppose firms do not respond to the minimum wage law so there is unemployment. Workers who can't work anymore will now leave the labor market and increase their domestic work at home. They make their houses really pretty and they make really healthy meals. Show on a graph that value to society. Is their a net loss (i.e., essentially a dead weight loss) to society? Show that area on the graph. Minimum Wage Suppose the government passes a law that makes it so firms can't use fringe benefits. In other words, the government will pay for health insurance, PTO, maternity leave, etc.. The government doesn't increase taxes for low-skilled workers (only the ultra wealthy) and will ensure firms do not lose any money from this law. Assume there is no change to the firms' costs. A) Draw what happens to the labor market that relies only on low skilled workers. What happens to wages? B) Now suppose in an alternate reality the government doesn't pass a law on fringe benefits. Instead, the government sets a new minimum wage law where the new wage is equal to the wage from part (a). Do this in two steps: (1) Firms respond by lowering fringe benefits and (2) assume workers really like fringe benefits. Show what happens on a new graph. C) Given part (B), suppose workers do not care about fringe benefits. Show what happens when firms respond to the binding minimum wage by lowering fringe benefits. What happens to employment? D) Now, suppose firms do not respond to the minimum wage law so there is unemployment. Workers who can't work anymore will now leave the labor market and increase their domestic work at home. They make their houses really pretty and they make really healthy meals. Show on a graph that value to society. Is their a net loss (i.e., essentially a dead weight loss) to society? Show that area on the graph.

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A Initial Labor Market with GovernmentFunded Fringe Benefits In this scenario the government covers the cost of fringe benefits such as health insuran... View the full answer